What is DeFi and how it transforms financial system

DeFi, short for decentralized finance, is a term that encompasses a variety of decentralized financial applications and services that run on blockchain networks. DeFi aims to create a more open, transparent, and accessible financial system that is not controlled by a single central authority or intermediary. 

Some of the benefits of DeFi include: 

  • Permissionless: Anyone with an internet connection and a compatible wallet can access DeFi applications and services, regardless of their location, identity, or credit history. 
  • Interoperable: DeFi applications and services can communicate and integrate with each other, creating a network effect and enabling new possibilities and innovations. 
  • Programmable: DeFi applications and services are powered by smart contracts, which are self-executing agreements that run on the blockchain and can be customized to fit various needs and scenarios. 
  • Transparent: DeFi applications and services are built on public blockchains, which means that anyone can verify the transactions and the code behind them, ensuring trust and accountability. 

Some of the examples of DeFi applications and services include 

  • Lending and borrowing: DeFi platforms such as Aave, Compound, and MakerDAO allow users to lend and borrow crypto assets, earning interest or paying fees, without intermediaries or centralized control. 
  • Exchanges and trading: DeFi platforms such as Uniswap, SushiSwap, and Balancer allow users to swap and trade crypto assets, providing liquidity and price discovery, without intermediaries or centralized control. 
  • Asset management and investment: DeFi platforms such as Yearn, Curve, and Synthetix allow users to manage and invest their crypto assets, optimizing returns and exposure, without intermediaries or centralized control. 
  • Insurance and risk management: DeFi platforms such as Nexus Mutual, and Opyn allow users to protect their crypto assets and hedge their risks, providing coverage and security, without intermediaries or centralized control. 

DeFi is not without its challenges and risks. Most common risks include technical glitches, hacks, regulatory uncertainty, and user errors. Therefore, it is important to do your own research, understand the risks, and use caution before engaging with any DeFi platform or service. DeFi is a long-term vision for a more democratic and decentralized financial system. 

DeFi is a rapidly growing and evolving sector, with over $63 billion total value locked (TVL) in DeFi protocols as of February 2024 [1]. DeFi offers a new paradigm of finance that is meant to be more inclusive, efficient, and innovative than the traditional system. If you are interested in learning more about DeFi, you can start by exploring some of the platforms and services mentioned above, or by reading some of the resources below.  

Further Reading 

[1] Cointelegraph: https://cointelegraph.com/news/defi-compliance-2024-new-sec-rules-challenged-finance-redefined 

DeFi Pulse: A website that tracks and ranks the most popular DeFi protocols by total value locked: https://www.defipulse.com  
The Defiant: A newsletter and podcast that covers the latest news and trends in DeFi: https://thedefiant.io  

Bankless: A newsletter and podcast that teaches how to live a life without banks using DeFi: https://www.bankless.com